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In the post WWII world, countries were struggling to rebuild what they had lost financially, and
Latin America was not excluded from these efforts. During both the Great Depression and the Second
World War, countries such as Argentina, Brazil and Mexico were affected indirectly by the interruptions in
trade flows that the global events caused. As the 1940s commenced, Latin America began to make an
organized effort to move towards a more self-sustaining economy. Previously, the primarily agricultural
nations relied very heavily on imports for all their manufacturing needs and manufactured goods. During
this period, a new economic idea emerged, that of Import Substitution Industrialization (ISI). One of the
most interesting cases is that of Argentina, a country whose economy was booming until the crisis that was
_____ by the implication of ISI under the Perón government. This paper will strive to effectively analyze
the policies under the plan of ISI, the reasons behind its implication, and its consequences on the Argentine
economy.
The theory behind the concept of ISI was “establishing domestic production facilities to
manufacture goods which were formerly imported.” 1 The aim was to heighten the countries’ terms of trade
while working to make them less reliant on foreign manufactured goods. The most important argument
advocating ISI was called the Infant Industry Argument. In developing countries, firms in a new industry
such as manufacturing are unable to compete with the well-established manufacturing sectors of other
countries. Therefore the Infant Industry Argument theorizes that governments have a responsibility to
support these small firms temporarily, and the most common way to do that is through enacting import
tariffs on those goods.2 Through these tariffs, internal industries will hopefully be coerced into buying from
the home industry, even though on the world market, foreign goods are less expensive. The government of
Argentina used this Infant Industry Argument to explain some of its move towards ISI in the 1950s.
Historically, however, no such reasons were needed, because the country was known as
The years 1870-1930 were a great period for the economy of Argentina. In 1880 an influx of
immigrants provided cheap labor, and the massive meat market became open for trade as refrigeration was
discovered in the beginning of the twentieth century. Grain exports became extremely strong as wheat was
constantly exported to Great Britain, and low opportunity cost of land made land-intensive products
convenient. Rapid growth continued until World War I, during which it slowed, but did not cease. 3
Throughout 1900-1929, total output grew at 4.6 percent per annum, and capital expanded at 4.8 percent.
The great wave of migrants expanded the labor market by 3.1 percent, allowing for the continual growth of
a labor-intensive, land-abundant economy as industrialization took place in the coastal cities such as
Buenos Aires.4 Diaz Alejandro writes of pre-1930s Argentine economy that it was
‘export-led,’ not because exports and their associated capital inflows provided
growing aggregate demand, but because (…) exports and capital inflows led to
an allocation of resources far more efficient than the one which would have
resulted from autarkic policies.”5
Before the onset of World War II, tariffs were moderately low, and usually used only for revenue. In
general, the character of the tariff was 5-20 percent on goods not produced in Argentina, and 30-50 percent
on those goods that could be bought domestically. 6 The import tariffs and the exchange control were
designed to discourage domestic industry. The only reason there were restrictions on trade was to appease
the extremely influential ranching elite.
The Great Depression served to change world markets enough to affect Argentina, although she
did not experience a depression herself. A shift in world prices and public policy moved the line of
comparative advantage to include textiles, cement, and other industrial firms. Between 1929-1939, real
fixed investment fell 16 percent, however, real consumption rose by 28 percent. Throughout and
immediately following the War, the government was not actually committed to an ISI plan, however,
manufacturing was granted almost full protection, because it became virtually impossible to buy goods
externally. Intermediate goods and capital, however, remained hard to find. This unintentional
protectionism was exacerbated by Argentina’s neutrality in the War, and therefore her relations were
stressed with her trading partners.
1
Werner Baer, p. 95
Krugman, p. 256
3
Alejandro, p. 6
4
Alejandro, p. 8
5
Alejandro, p. 11
6
Alejandro, p. 295
2
As the War drew to a close, the World Market conditions slowly improved, and Argentina gained
the opportunity for economic growth through exports. With the rise of Peron, however, ISI became the
policy of choice, as privileges were given to any industry that leaned away from agriculture and towards
manufacturing. Instead of working to both foster the export market and invest capital in the manufacturing
sector, Peron and his government put the overwhelming burden of development onto ISI, allowing the
export sector to stagnate.7 Perhaps the reason that the government took this path was because real GDP
growth was not the principle goal. Peron, in order to foster his appeal to the masses, worked to create jobs
in the urban sector, as well as establish social services. The reasons for this were almost purely political.
Firstly, the problems that stemmed from the War and the Great Depression had disillusioned the people to
liberal economic policies, and they looked towards new ideas to change the situation. Therefore, even
though industries were not necessarily exactly what the economy needed long-term, politically it was a
brilliant move for the Peronist government.
Added to this political strategy came the reemergence of nationalistic tendencies throughout the
masses. After being, as they saw it, abandoned by Great Britain during WWII after declaring neutrality, the
Argentine citizens were indignant and felt that protectionist policies would simply serve to hurt those who
desired to buy Argentine exports. They were not able to understand the long-term effects that closing the
economy would produce. As the Peron administration continued throughout the late 40s and into the 50s,
price inflation and more discriminatory ___?__ in individual markets characterized the economic policies.
7
Alejandro, p. 106